OPINION: DURING previous property booms, valuers have been blamed for over valuing properties; in the current climate, valuers are being blamed for under valuing properties.
The reality is valuers provide the current market value, not the high and low extreme fluctuations witnessed during previous periods in the property cycle.
The current debate on valuations in all market sectors, be it commercial, industrial, retail or residential, is a misunderstanding of the valuers role in the market place, particularly in markets that are moving in either direction in different parts of Australia in the current “two-speed” economy.
There are agents and developers currently making comments regarding valuers for failing property transactions, but on the other hand Banks would be calling foul if valuations were perceived to be ‘inflated’ to meet a vendor who has expectations higher than marketplace realities.
It is ultimately the job of the valuer to analyse the market and give a just valuation of a property if it were to be sold today in fair and reasonable market conditions, not in accordance to specific conditions within a contract of sale or based on a marketing strategy that is not available to the purchaser or the general public.
Australian Property Institute members undertaking valuations are continually updating skills through Continuing Professional Development programs and regular attendance at conferences. They work under the International Valuation standards 2011 and a comprehensive Professional Practice manual which outlines guidance notes and a code of professional conduct. Finally members who hold a certification as a Certified Practicing Valuer carry out a Risk Management program every 3 years.
The question may go on but the answer remains the same: a current valuation of an asset is a fundamental requirement for transparency and transparency is vital for our economic and financial systems. One of the reasons Australia has fared so well during the GFC is that the Banks maintained in general, sustainable LVR’s and used Valuers to ensure they and their customers were not financially over exposed.
The problem facing the property market currently is that there are signs it may have bottomed, you see examples where certain markets have bounced back slightly and examples where markets appear to be still weakening, however it is uncertain times and valuers, although independent, are valuing to instructions from the Banks. If valuers follow these sharp movements up or down, they are not providing the protection to their client, the Bank nor the Banks client, they must follow the general market movement.
What must also be remembered is that valuers do not set the market, they interpret it! Market value does not contemplate the intentions of the owners to hold or sell an asset.
The current debate on valuations is more about who to blame for these hard market conditions we are currently faced with. Agents are being questioned by Vendors and developers need to explain falling revenues to shareholders. Valuers are generally the silent link in the process and it is easy to shift the blame to them.
The reality is property prices have come back significantly over recent years and therefore valuations have adjusted to that reality.
It is not the job of the valuer to create a valuation to meet vendor or sales person’s expectations and it is the bank’s job to protect their shareholders by not lending on overpriced properties. We only have to look at overinflated international property markets prior to the GFC to understand what subsequently happens when banks lend on overpriced property to people who have to borrow a large amount of the purchase price. Property prices in the post GFC downturn in some of these international markets have plummeted by as much as 50%. This has caused significant difficulties in the global banking industry with flow on effects in the Australian economy caused by the higher cost of wholesale funds to the Australian Banks.
It was not the API’s expectations that the worst of these international events would occur in Australia, however, the property market is fluid with market conditions constantly changing, it is critical that all property professionals work together to ensure that the real market position is being identified and that property is seen as a desirable asset, not one with undue unseen risks.
*By Philip Willington, president, Australian Property Institute (Queensland).
